Jump from residential mortgages to commercial and join one of the fastest-growing segments in the broker world.
There was a surge of interest in commercial property lending last year. A big part of this interest can be attributed to the changing market. As confidence in residential mortgages continues to cool, the commercial property market appears to be holding steady.
At the end of March 2016, Australian banks held $252 billion in commercial property loans, an increase of 7.4 per cent from a year earlier, according to APRA.
“Simply, it’s one of the fastest-growing segments of the finance broker market,” La Trobe Financial’s VP chief lending officer, Cory Bannister says.
“Finance broker participation in commercial lending has for a long time lagged behind residential lending, which is now approaching 60 per cent marketshare.”
Mr Bannister says, in comparison, finance brokers are involved in just 30 per cent of commercial property transactions, a substantial increase from five years ago.
“One of the major benefits is obviously the ability to write more business, in turn generating an additional revenue stream. However, a secondary benefit is that it allows a broker to better service their existing client portfolio,” he says.
Commercial property lending can be more complicated than people realise. Thinktank Commercial Finance’s head of sales and distribution, Peter Vala, says borrowers and brokers need to take several factors into account.
“The underlying purpose of the loan and type of security being used will determine whether the matter is a commercial, residential or consumer loan,” Mr Vala says.
“For property transactions, if the purpose of the loan doesn’t fall under NCCP guidelines or the property is not of a residential nature, the matter is considered commercial.
“If a non-residential property is being acquired – such as an industrial unit, retail space, warehouse or an office – the proposed loan would typically be secured by a mortgage, just like a home loan except under modified terms and arrangements.”
The leap into commercial property by residential brokers may appear to be a natural progression.
ING DIRECT’s national partnership manager, commercial, John Kolyvas – who conducts training sessions on commercial lending – says this line of thinking is largely correct.
“The general feedback from brokers at our workshops is that, for the most part, they’ve already got the skills, especially residential brokers that have been doing it for a while. They just lack the confidence,” Mr Kolyvas says.
“But if you’re willing to start small in the commercial space, it’s really not too hard for a residential broker looking to transition.”
There are, however, several differences in commercial, and understanding these differences will require brokers to undergo training. In many cases, lenders will not accredit loan writers unless they have some recognised education in the space.
Thinktank Commercial Finance conducts regular free workshops – with MFAA and FBAA Continuing Professional Development points – for brokers. It also provides one-on-one training and offers direct support to brokers preparing credit submissions in their initial transactions.
“Begin by establishing relationships with key contacts and mentors within the industry that can help guide you. Your aggregator should be able to assist with the names of key contact points within their group and with supportive lenders,” Mr Vala advises.
The great thing about commercial property is that if you are already a broker, you may not have to look far for new clients. Mr Kolyvas says the first point of call for any broker is their existing client book.
“Many may be business owners or have a history of commercial lending, so be aware of indicators in business bank statements that could suggest an interest in asset finance or commercial borrowing,” he says.
Mr Kolyvas suggests talking to residential investor clients who have large and growing property portfolios.
“If they are continuing to invest, it may make sense for them to diversify their property assets by entering the commercial investment space.”
The next step is ensuring you have the right referral network. Successful commercial property brokers know that a big part of the job is about knowing the right people.
“Building relationships with accountants, solicitors and real estate agents is a good starting point, and many brokers will already have these in their network of referrers," Mr Kolyvas says.
“They’ll have a great idea of who’s looking to expand and what financial position they’re in since business owners usually work closely with these guys.”
Industry events, business networking groups and training days are great ways to build a referral group and engage in marketing to let the community know you are entering the commercial mortgage space.
“Start by spreading the word through your regular communications channels. Update your website, social media, your marketing assets, business cards and so forth,” Mr Kolyvas advises.
Learning about individual business sectors can put you ahead of the game when you meet with potential clients.
“If you come across a commercial loan opportunity, have a look at what industry the borrower’s in and do some research on that industry,” Mr Kolyvas says.
This might involve a basic online search, reading industry papers or approaching lenders for advice.
“Find out what’s happening and what the key drivers are in that industry. By having that background information, you’ll be able help your client more and present yourself as someone with knowledge in his or her industry,” Mr Kolyvas says.
He adds that once you do research into three or four types of businesses, you will soon find commonalities across business principles that all industries follow.
“You can carry that knowledge across any business you work with after that.”
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